Fixed cost Vs Variable cost
Companies generally have to bear cost of production. It can be divided in to two parts specifically. There are known as variable cost and fixed cost.
What is Fixed cost?
Fixed cost does not depend on the others at any given occasion. Output comes across as an independent one. It may remain constant every time. Generally, things like buildings, rent and machinery are included within the periphery of fixed cost.
On the other hand, difference in the variable cost may be observed with the alteration of the production output. Increase in the amount of the variable cost can be seen in a constant manner. It is generally related with the capital and labor cost. Therefore, calculation of the variable cost is done on the basis of utilities, wages and materials used for the purpose of production.
Through the definition, some idea about the fixed and variable cost can be obtained. In case you want to know about it in detailed manner then you may have to look at the fixed cost Vs variable cost. During accounts, both the accounts are generally combined together. Usage of electricity is seen majorly in the factory. If nothing is produced even then you may have to invest some amount of money for electricity.
Fixed Cost Vs Variable Cost
In some occasion, differences have been made between variable cost and fixed cost.
Change in the variable cost has been observed. However, fixed cost remains same regardless of different kinds of activities connected to production. Increase in the amount of product may not create any alteration also.
During accounting, everything is determined as either fixed cost or variable cost. Inventoriable costs are generally noticed with the variable cost. It is given to the production unit and recorded under the inventory account. Cost of the material takes major part of this type of cost. However, fixed cost is not an inventoriable cost at all. Fluctuation is not seen with the cost. Indirect costs are generally included within this category in addition to the overhead cost of manufacturing.
In order to know whether a cost is variable or not, you have to determine the fact whether this particular cost may be increased or not in case the production has been stopped completely. However, business activity of primary nature must be included within it exclusively. If the company stays stable with the cost then it can be considered as fixed cost. Due to lack of cost increase, the specific cost can be retained under variable cost.
Through the examples, you can get to know some differences about the fixed and variable cost also. Phone charge per minute by a telephone company can be considered as a variable cost. In case of a call for twenty minutes, you may be charged more than a ten minute call. However, if a company rents a location for manufacturing then fixed amount of money must be given landowner every month or year.
Production is mostly depended on the variable cost instead of fixed cost. However, both the cost has to be taken in to consideration at the time of accounting.